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2015 (4) TMI 1343

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....umbai. It has acquired a banking application software named as "Flexcube" from an Indian software company which is exclusively used for the banking purpose by the assessee all over the world. When the Mumbai Branch was set-up, the Branch was allowed to use the said software by making it assessable through servers located at Belgium. The Branch sends its data to the Belgium server from where the data gets processed as per the requirement of the banking operations. As per the terms of agreement between the Branch and the Head Office for the usage of software by the Branch, which has been incorporated above, it is evident that the Head Office only has the non-exclusive non-transferrable rights to use the computer software brought for personal use and clause 16 of the said agreement specifically provides that the Head Office does not have any right to assign, sub-license or otherwise transfer the license of this agreement. Thus, the payment by the Branch for use of computer software is not the right in the copy right but only for doing the work from the said software which subsist in the copy right of the software. The branch is using the computer software and the I.T. resources instal....

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....ata basis. Such reimbursement of payment does not fall within the ambit of definition of "royalty" within the Article 12(3)(a). To fall within its ambit, the Branch should have exclusive and independent use or right to use the software and for such usage, payment has to be made in consideration thereof. It is not the case of the Revenue that the Head Office has provided any copy right of software or any copyrighted article developed by the Head Office for the exclusive use of the assessee for, which the assessee is making the payment along with the mark-up exclusively for the purpose of royalty. If the payment for license for the software which is installed in the Head Office is being made by the Head Office, then any allocation of cost and reimbursement thereof by the Branch to the Head Office cannot be termed as independent payment for the purpose of royalty. To fall within the ambit of "royalty" under Article, the payment should be exclusively qua the use or the right to use the software exclusively by the Branch. The character of the payment under the royalty transactions depends upon the rights that the transferee acquires in relation to the use and exploitation of the softwar....

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....ftware with the help of which data is processed. We are not persuaded. As we have concluded earlier in this order, on the facts of this case, the payment made by the Indian company is not for the use of, or right to use of, software, the payment is for data processing. Be that as it may, even if stand of the revenue is to be upheld and it is to be concluded that the payment is made for software per se, that does not lead to taxability of receipt in the .hands of the Australian company either. It is also by now settled that the payment for software is for a copyrighted article and not copyright per se, and, therefore, is not covered by the scope of payment for copyright. The authority for this proposition is contained in Special Bench decision in the case of Motorola Inc. v. Dy. CIT (2005) 95 ITD 269 (Del)(SB), Samsung Electronics Company Ltd. v. ITO (2005) 94 ITD 91 (Bang), and Lucent Technologies Hindustan Ltd. v. ITO (2005) 92 ITD 366 (Bang). It is not even the revenues case that the payment in question is not (sic) for the use of, or right to use of, patent, design or model, plan, secret formula or process, or trade mark. In any event, having perused these classifications and ha....

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....pose of, and consideration for, the impugned payment being made to Australian company. The payment, as we have observed earlier, is for the activity of specialized data processing. It is neither practicable, nor permissible, to assign monetary value to each of the segment of this economic activity and consider that amount in isolation, for the purpose of deciding character of that amount. Therefore, neither the impugned payment can be said to be towards use of, or right to use of, the mainframe computer, nor is it permissible to allocate a part of the impugned payment, as attributable to use of, or right to use of, mainframe computer. Accordingly, the provisions of article 12(3)(b) cannot have any application in the matter." 18. Insofar as the reliance placed by the learned Departmental Representative on the decisions of the Madras High Court and also the scope of "royalty" as given in Explanation 4 and 5 to section 9(1)(vi) brought in statute by the Finance Act, 2012 are concerned, we find that the same is not tenable for the reason that once the assessee has opted for the benefit of the DTAA, then there is no requirement for resorting to the definition and the scope of "royalty....

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....as provided in section 44C. The nature of expenses as given in section 44C, has to be necessarily in the nature of executive and general administrative expenses only. The conclusion drawn by the learned Commissioner (Appeals) that such expenditure does not fall within the purview of section 44C, is in consonance of the decision of the Special Bench and the co-ordinate bench of the Tribunal cited supra, which we uphold. Thus, ground no.3, as raised by the Revenue, is dismissed." 5. Ground No.3 relates to interest paid to head office. The very same issue has also been decided by the Tribunal in the aforementioned case, wherein the observation of the Tribunal is as under :- 24. In ground no.4, the Revenue has challenged that the deletion of disallowance of interest of Rs. 58,20,110. The learned Commissioner (Appeals) has not only deleted the said disallowance on merit but has also held that this amount has already been disallowed by the assessee on account of failure to deduct the tax at source. Therefore, it will lead to double addition. The relevant observations of the learned Commissioner (Appeals) is as under:- "5.2 I have considered the arguments of the AR. The issue of all....